Problem 19-8A (Part Level Submission) (a) DILITHIUM BATTERIES DIVISION Income St
ID: 2416646 • Letter: P
Question
Problem 19-8A (Part Level Submission)
(a)
DILITHIUM BATTERIES DIVISION
Income Statement
For the Year Ended December 31, 2014
Absorption Costing
53,750
Produced
86,000
Produced
SHOW SOLUTION
SHOW ANSWER
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(b)
DILITHIUM BATTERIES DIVISION
Income Statement
For the Year Ended December 31, 2014
Variable Costing
53,750
Produced
86,000
Produced
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Problem 19-8A (Part Level Submission)
Dilithium Batteries is a division of Enterprise Corporation. The division manufactures and sells a long-life battery used in a wide variety of applications. During the coming year, it expects to sell 53,750 units for $32 per unit. Nyota Uthura is the division manager. She is considering producing either 53,750 or 86,000 units during the period. Other information is presented in the schedule.Division Information for 2014 Beginning inventory 0 Expected sales in units 53,750 Selling price per unit $32 Variable manufacturing costs per unit $13 Fixed manufacturing overhead costs (total) $430,000 Fixed manufacturing overhead costs per unit: Based on 53,750 units $8 per unit ($430,000 ÷ 53,750) Based on 86,000 units $5 per unit ($430,000 ÷ 86,000) Manufacturing cost per unit: Based on 53,750 units $21 per unit ($13 variable + $8 fixed) Based on 86,000 units $18 per unit ($13 variable + $5 fixed) Variable selling and administrative expenses $3 Fixed selling and administrative expenses (total) $45,000
Explanation / Answer
Please see answer below -
Explanation of the difference in net operating income:
The net operating income under absorption costing is more than the net operating income under variable costing, When production is more than sales (as in this exercise), the fixed manufacturing overhead is deferred in inventory that causes a higher net operating income under absorption costing than under variable costing. and when production is equal to sales then there is no difference in income in absorption and variable costing methods.. The reconciliation of net operating income is as follows:
Variable Costing - Income Statement Particulars Production 60000 Units 90000 Units Sales - In units 60,000 60,000 Unit Price $ 30 $ 30 Total Sales $ 18,00,000 $ 18,00,000 Less Variable Cost of Manufacturing Beginning Inventory $ - $ - Variable cost of goods manufactured ($12/unit) $ 7,20,000 $ 10,80,000 Variable cost of goods available for sale $ 7,20,000 $ 10,80,000 Ending Inventory $ - $ 3,60,000 Cost Of Sale $ 7,20,000 $ 7,20,000 Gross Contribution Margin $ 10,80,000 $ 10,80,000 Variable selling and admin. expenses ($2/unit) $ 1,20,000 $ 1,20,000 Sub Total $ 9,60,000 $ 9,60,000 Less : Fixed Costs Manufacturing overhead $ 5,40,000 $ 5,40,000 Fixed Selling & Administrative Cost $ 50,000 $ 50,000 Sub Total $ 5,90,000 $ 5,90,000 Net Operatin Income $ 3,70,000 $ 3,70,000